Investment levels in Ukraine hit a 10-year high

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Ukraine

Investment levels in Ukraine hit 10-year high Anna Nestulia Founder, Invest in Projects www.investinprojects.pro

Over the last three years, Ukraine’s economy has been recovering and investment has started to return. No doubt, the country, and its capital in particular, deserve more attention from international players. And here is why.

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ccording to the World Bank, the inflow of foreign direct investment into Ukraine in 2018 grew by 3 percent compared to 2017. The annual report of the National Bank of Ukraine says the net inflows of foreign direct investment in Ukraine reached $2.4 billion. More than half of it was allocated to the real economy. In comparison, Ukraine surpasses Croatia, Georgia, Bulgaria, and the Baltics.

And one of the most dynamic markets today is construction and real estate.

According to Cushman & Wakefield, in 2018 Ukraine’s commercial real estate market recorded $335 million of investment. In terms of the number of deals done, the market reached a 10-year high. An annual M&A report by KPMG says that at least 23 deals were concluded in the field, which is onethird of all deals in Ukraine.

Among the most active players on the market is the investment fund Dragon Capi-

International players prefer the acquisition of real estate assets to investing in new development

tal that acts in cooperation with the international bank Goldman Sachs. According to Colliers International, since 2016 the fund has acquired assets worth about $400 million.

During 2018 Dragon Capital acquired two shopping malls – one in Lviv, another in Vinnitsa; three business centres in Kyiv and Zaporizhya, as well as an А-class logistics complex in a Kyiv suburb.

The number of deals today struck with international players can be explained by the fact that they prefer the acquisition of real estate assets to investing in new development. They want to mitigate the country’s risks and ensure stable and high yields. According to Cushman & Wakefield, yields in the office segment are 12 percent, in retail 12.25 percent, and 12.75 percent in logistics.

Terry Pickard – Group Chairman, Pickard Group Ukraine is finally on the up! In today’s rather turbulent world with political unrest and economic insecurity Ukraine may be offering a place of some tranquillity; now that’s new. GDP growth last year was 3.4 percent and is currently forecast to achieve 2.5 percent plus this year: pretty impressive compared to the EU’s just over 1 percent. Dragon Capital, together with Goldman Sachs, have invested an estimated $800 million into shopping malls, logistics facilities and business centres and Horizon Capital have just finished raising $200 million for their new investment fund. Further, Norwegian, Spanish, Chinese and other nationalities have, or will, be investing up to $3 billion into solar farms and hydro schemes. But for others there are opportunities in residential, logistics, retail, agriculture and office projects by either refurbishment, extension or new build, offering yields in excess of 20 percent. Plus, if you add to that, Colliers have stated that property prices could double in three years (here at Pickard REAS we are a little more conservative and estimate five years), yields could reach over 30 percent per annum over five years. This would still be only 60-70 percent of what they achieved back in 2007. The only political issue is the forthcoming presidential election in April, but most commentators believe that with the population firmly behind an ever-closer relationship with the EU and NATO, the main direction of the country will not change much whoever wins.

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Ukraine

Alexander Nosachenko – Managing Director, Colliers International Ukraine

Local investors or investment funds working with local capital are considering the purchase of assets in Ukraine. International investors are mostly interested in completed facilities, below the market value with a good location, stable cash flows, high quality tenant-mix and long-term lease agreements. Currently, the investment market is showing signs of revival as information about major investment deals appears rather frequently. Although deals of over $50 million are less likely to happen. Office buildings with a total area of up to 10,000 sqm with proper layout, a sufficient number of parking spaces and valid title for both land and property are the most easily-realisable assets. The current yield for prime office and shopping centres is 12 percent and 11 percent for street retail. So far many potential investors do not consider Ukraine as a country attractive for investment. The key factors that hamper capital flows into the commercial property segment are the weak national economy and the conflict in the East of Ukraine. There are also “traditional” problems such as corruption, non-transparency in interaction between entrepreneurs and the state. In comparison with other CEE countries, Ukraine has practically the highest prime yields for office and retail objects, this indicates a high risk for capital investments.

But in spite of that, this year Ukraine welcomed Canada’s Brookfield & Partners, which headed a consortium of investors involved in the first stage of Innovation District IT Park in Lviv, which has a gross area of 10 ha. According to the developer of the project, its cost is $160 million.

The number of deals and new investors in the country now represents an actual investment environment. This is a good indicator for private investors to rediscover Ukraine, despite the existing and well-known risks.

This year became prominent for a lot of developers and banks, who could sell their assets and collect returns on their investments.

Probably for the first time in many years local experts admit that investors expect a growing market.

Investors expect a growing market

Why international companies should rediscover the Ukrainian market?

Vitalii Boiko Founder and CEO NAI Ukraine

We are living in a period where information is playing an important role in every sphere of our lives. When talking about business, especially investment, it’s important to disclose a country’s attractiveness. You need to provide investors with the solid arguments that appeal to influential global players. Here, the right interpretation of key economic indicators and statistics, confirmed by in-house surveys and insights from local players, provide investors with true and up-to-date data.

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ast year was significant for Ukraine because a lot of international retailers entered the market not as franchisees but as investors in the country. During 2017-2018 about 40 new retailers entered the market. Kyiv now occupies 13th position among the best cities for international brand expansion, surpassing Prague, Taipei, and Bucharest.

Vitalii Boiko

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Ukraine

Thus, H&M opened its first store in Kyiv.

IKEA made an official statement that it would open the doors of its first store in August 2019. One of the reasons that international players have rediscovered Ukrainian potential was the right interpretation of all statistical and analytical data of the local market.

The Ukrainian economy is known for its shadow economy, so while collecting the statistical data one should keep in mind the shadow economy adjustment tariff. According to the National Office of Statistics of Ukraine, the shadow economy of the country is 20 percent. But, according to the International Monetary Fund, the size of the shadow economy in Ukraine is 44 percent.

At the end of the day, official macroeconomic indicators may seem quite controversial. Though all of them should be carefully explained to the international players due to the market specificity.

Statistical manipulations and consumer behaviour To start with the retail market, it is a wellknown fact among the local players that true retail turnover does not correspond with the official statistics, despite official data showing grows again after the huge decrease in 2014.

The non-transparent system doesn’t make clear the actual information, which reveals the real situation. All players are obliged to make their own research and use their own coefficients, statistics in order to have a real picture of the Ukrainian economy.

Thus, such studies show that official statistics don’t show the true situation at almost every level. Due to the big size of the shadow economy, the official economy collects

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only pieces of information, which does not correspond to the real figures. As a result, they seem unpromising for investors.

Sometimes official statistics data mislead in a different way. For instance, in 2017 the way gross retail turnover in Ukraine was calculated was changed. As a result, today’s tables show contradictory figures, which should be carefully explained.

Absolute measures of retail turnover provided by the Office of the National Statistics of Ukraine for 2017 are substantially smaller than the same measures for 2016. Hence, without knowing the true reasons for the decrease, international companies might decide the Ukrainian market is very unappealing. Though, while specifying the relative growth index, 8 percent growth is seen.

It is one of the best results in Europe.

As a result of the in-house customer behaviour analysis and social surveys to calculate the level of real salaries in the capital and beyond Kyiv, it is a fact that the margin of error is around 5 percent. This survey shows that real salaries are much higher – 30 percent higher when compared to the official statistics, and almost twice as high in the big cities. In 2017 compared to 2016 salaries grew by 66 percent. In 2018 the growth was about 24 percent.

GDP per capita vs GDP per purchasing power parity Every investor judges a country’s attractiveness by GDP per capita. Here in Ukraine, however, official statistics do not correspond to the real figures. Though, nowadays it’s not correct to do so as this measure fails completely when it comes to wellbeing.

Remember 2010, the year everyone admired China, which became the second biggest economy in the world. That year Chinese GDP grew so fast that it finally dislodged Japan, making China second to the United States in economic terms.

It is worth mentioning that everyone assessed China in terms of GDP per purchasing power parity (PPP), while the Ukrainian economy presented in the international reports was assessed by GDP per capita. Interestingly that Ukraine’s GDP (PPP) was the same as China’s.

Today the international business community is watching the rapidly growing Indian economy. But history is repeating itself. If we compare these countries by GDP (PPP), today Ukraine is stronger than India.

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Perhaps it is unfair to compare Ukraine with India or China considering the size of the population, territory and other factors.

Ukraine is not as large as the Asian countries, but in Europe it is one of the biggest economies. The country’s GDP is bigger than the overall GDP of the Baltics, Slovakia and twice as big as Bulgaria.

Ukraine is known as one of the cheapest countries in terms of the cost of goods and services. So, it is not fair to compare goods and services produced in Ukraine with those produced in Israel or India. Considering GDP per purchasing power parity, Ukraine comes 15th amongst European countries and surpasses Portugal, Denmark, Finland; in the global ranking, it even surpasses Qatar and Israel taking 50th. And this is official data, without considering the shadow economy. Take that into account then Ukraine comes 12th in Europe, level with Austria.

The purchasing power of the Ukrainian population differs from official statistics on average by 30 percent. Even considering the data provided by the Office of National Statistics of Ukraine, the figure reached $16 billion for the first half of 2018, which is higher than the overall expenses of the population of the Baltic countries.

The impact of geopolitical problems on the economy should not be exaggerated We should also stress, that in the last five years the Ukrainian economy has been under pressure from dramatic military and political events. This was one of the key reasons’ investors didn’t consider our country for further development.

Currently, even using official data, we see the signs of a recovery, in almost all spheres.

For example, the industrial sector, which has been severely affected by the loss of control over the industrial centre in the eastern part of the country and the devaluation of the national currency in 2013-2014, was hit by a severe slump in 2014. But today’s figures are quite positive, even in comparison with its European neighbours.

The dynamic volume of construction work in terms of money is growing (in the national currency). It has, however, owing to several waves of devaluation, still not reached the pre-crisis figures of 2013-2018. Despite this the volume has surpassed those of small developed European countries like the Baltics, Cyprus, and Malta.

Considering commissioning, Ukraine is one of the leaders in Europe and corresponds to the Polish and British volume of construc-

Ukraine

tion. Concerning the supply per 1,000 residents, the results are not so high but still corresponds to the level of most European countries.

The most difficult area is capital investment. The market needs 50 percent growth to be able to reach the levels of 2013. Still, Ukraine is an important country in terms of its volume of capital investments worldwide.

The country is ranked 63rd globally.

All these facts, together with the current positive dynamics allow us to consider Ukraine as one of the biggest and underestimated European economies.

The material is based on the official statistics and in-house analytics of NAI Ukraine (www. naiukraine.com)

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City One Development presents Lipki Island

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ity One Development is an investment and development company that has been specializing in the development, implementation and management of residential real estate projects for over 10 years. The company is a pioneer in Ukraine in the creation of large-scale infrastructure residential complexes, which have become a hallmark of the capital of Ukraine.

City One Development is a steadily developing development business, with a portfolio of more than 700,000 sqm of already sold volume, and 650,000 sqm currently under contract. The company has its own large land assets that enables it to develop concepts for a project of any complexity and class.

In its activities, City One Development adheres to international standards of ethical business conduct and, therefore, it carefully selects its projects partners who share and adhere to the same standards. The company also pays special attention to eco-friendly projects: from choosing a building area to using safe materials and ensuring a harmonious balance between natural environment and a new development.

Lipki Island – island of innovations Lipki Island is an innovative project in the City Resort format in the historical and business center of Kyiv. This is a real residential island consisting of many quarters. A city in the city. Functionally fully self-sufficient, this is a unique project, which is off the scale in Ukraine at the moment!

Lipki Island is designed with its unique location – between the right and left banks of the country’s main waterway, the Dnieper River, on the Rybalsky peninsula – taken into

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account. Lipki Island is the result of the work of modern architects and urban specialists, who embodied in this concept a harmonious combination of dynamic urban life with the natural environment. The project reflects the latest trends in the eco-friendly green approach to construction with the use of a number of energy-efficient solutions.

The modern residential complex has an area of 40 hectares, which will be built on land once occupied by a shipyard in the

capital of Ukraine and will be the largest redevelopment project in Kyiv. The unique architecture of the residential buildings and the cascade avenue of fountains for the future 15,000 residents of the complex, a business centre with convenient infrastructure and traffic junctions, shopping and service centres, a car-free zone and various cycling routes, a secondary school and kindergarten, a multifunctional sports complex, green areas for recreation with an area of more than 222,420 sqm, a 1,000 meters long promenade lane along the riverbank , a yacht club, and much more – all this will unite into a single urban mix a new business-class project Lipki Island.

lipkiisland.com